Six Economic Lessons From Harvey

The pictures are horrific. The storm Harvey has destroyed the Texas Gulf Coast. By Sunday afternoon, FEMA (Federal Emergency Management Agency) informed the Texas Governor: “We’re going to be there for years.” By Monday, FEMA said they expect over 450,000 Harvey victims.[1]

People are more valuable than things. Unfortunately, the loss of life is growing; it is now at 30. The physical damage is devastating. This disaster is bigger than what Texas can handle. Volunteers from around the country are in Texas helping. More will come. The federal government will have an important role. Here are six economic lessons we can learn from this terrible event

1. Preparing for the worst is wise. Previous generations of Americans had food cellars, grew their own food, and hunted for more. Many of us, today, rely on a trip to the grocery store for tonight’s dinner. When the average grocery store has only a three-day inventory of food, what happens when there is a breakdown in transportation? When Lake Houston subsides (see adjoining picture), how long will it be before flooded stores are usable?Will they even be inhabitable? Although Harvey created a far bigger problem than just Houston, America’s fourth largest city—with more than 2 million residents—has a crisis of biblical proportions. Businesses will fail. Families living on a financial edge will have lost wages and will be forced to declare bankruptcy. Hundreds of thousands of Texans, who have lost all personal property, will start their lives over. This will have a generational impact. Children now have their future impacted as financial resources are shifted to the immediate needs.

So how do we prepare? If you live in a part of the country not scarred by hurricanes, torandos, blizzards, floods, landslides, wildfires, lightning strikes, or earthquakes, do you still need to prepare? Yes. Our first priority should be to take care of ourself and our family. Before Harvey, few in the Gulf Coast envisioned this much rain. The magnitude of this has never happened before. Similarly, we can’t envision what disaster may require our preparation. If you feel unprepared, here are two simple articles which may get you started: [click here and here].

2. Home storage for food and money has its risks. Hardcore preppers may be pleased they have a year’s supply of food in their home, along with cash, metals, and lead. All that may be good, but it may all be lost in a natural disaster.

So what do we do? We need survival stuff in our home. Just be aware too much home storage goods may be a costly mistake, if that investment prevents the implementation of other options. We need supplies and cash available to us in our home. We need cash in a bank or savings institution. We need precious metals in our home as well as securely stored in other locations. The point is to be aware of the insecurity of home storage. Plan for the worst.

3. Liquidity and mobility are more important than wealth. With parts of the Gulf Coast without power, ATMs and credit cards had no value. A large IRA or 401k did not help people who waited on their roof for a rescue boat. When needed, a $300-$500 bug-out bag may be more important than money in a retirement plan. [Click here for bug-out advice.]

4. The government does not trump personal responsibility. Gerald Celente retold the story of his decisions when he experienced an earthquake in Chili. It is a worthwhile read, to see personal responsibility in action: [Neo-Survivalism Trend In Action].

5. Our national debt will increase, more money will be printed, gold and silver will reach new highs, and the dollar will lose significant purchasing power.In ancient Israel, Joseph is the model for emergency preparedness. He foresaw a seven-year drought and was used to save two nations by planning ahead and storing food in advance. Our government hasn’t done that. It doesn’t plan ahead. The billions in federal monies that will be needed to rebuild Texas do not exist today. They will be printed out of thin air.In just a few weeks, watch for the debt ceiling to be raised and for next year’s budget to spend more money than the current year. If you don’t understand the consequences, then [click here, here, and here].

Let me backup and say this differently. Most financial planners would advise people to have six months of cash reserves for emergencies. It wouldn’t be a bad idea to have even more cash or cash equivalents. Texas began the year with $10 billion in a “rainy day fund.”[2] Our federal government has no significant emergency reserves. In the last fiscal year, 82% of all tax revenue went to mandatory spending and interest on the debt. After spending the remaining 18% of revenue, the government then spent another $548 billion through the use of debt. The federal government has mismanaged funds for more than 80 years. As a result, any federal funds used to help Texas, will come by the Treasury selling bonds to the Federal Reserve, who will create new money to buy the bonds. These are the type of financial decisions which have labeled some countries: Banana Republics.

“But FEMA’s Disaster Relief Fund is $1.3 billion.[3] Doesn’t that count for something?” No. That represents 1% of what was reportedly spent on Hurricane Katrina.[4]So when President Trump promises swift action in providing aid to Texas,[5] where does that money come from? It is money that doesn’t exist, today. Yet, Congress will vote on this aid next month, as if we have surplus funds which can be tapped for emergencies.

6. Crises like this negatively affect the economy; it is NOT an economic boost. There is a false economic view disasters like this stimulate the economy. It defies common sense. Suppose the average Gulf Coast Texan has to use all personal capital to rebuild his or her home and restock all furnishings.This will result in construction jobs and, perhaps, in retail, but it will devastate restaurants, health clubs, and other businesses which benefited from discretionary spending before Harvey. The correct economic view is taught in the [“Broken Window Fallacy”]. The story is told in the book, [Economics In One Lesson]. This is an important book in understanding government spending doesn’t produce economic growth.

The people of the Gulf Coast need our prayers. They have a tough time ahead of them. Something good can come from this, for us, as we learn from this disaster.

“Dollar” Bill is a real guy, with real knowledge on our nation’s financial calamity, and real solutions for what must be done to dig ourselves out of the hole we are in. Due to his career, Bill must remain “disguised” to protect his position. “Bill” loves America, sees the impending cliff we are all headed towards, and hopes that by sharing his inside knowledge of the failed monetary policy in our nation, that a fiscal “nuclear” event can be minimized.